AI Doom vs Boom, EA Cult Returns, BBB Upside, US Steel and Golden Votes

26:38But driving, there's not gonna be more driving to be done. So is this time different in terms of the velocity of the chain and the job displacement in your mind, Frieberg? The velocity is greater, but the benefit will be faster. So the benefit of the Industrial Revolution, which ultimately drove lower price products and broader availability of products through manufacturing, was one of the key outputs of that revolution, meaning that we created a consumer market that largely didn't exist prior. Remember prior to the Industrial Revolution, if you wanted to buy a table or some clothes, they were handmade, they were kind of artisanal.

27:13Suddenly, the Industrial Revolution unlocked the ability to mass produce things in factories, and that dropped the cost and the availability and the abundance of things that everyone wanted to have access to, but they otherwise wouldn't have been able to afford. So suddenly everyone could go and buy blankets and clothes and canned food and all of these incredible things that started to come out of this industrial revolution that happened at the time. And I think that folks are underestimating and under realizing the benefits at this stage of what's going to come out of the AI revolution and how it's ultimately going to benefit people's availability of products, cost of goods, access to things.

27:50So the counterbalancing force jcal is deflationary, which is Let's assume that the cost of everything comes down by half. That's a huge relief on people's need to work 60 hours a week. Suddenly you only need to work 30 hours a week and you can have the same lifestyle or perhaps even a better lifestyle than you have today. So the counter argument to your point, and I'll talk about the pace of change in specific jobs in a moment, but the counter argument to your point is that there's going to be this Cost reduction and abundance that doesn't exist today. Give an example. Let's give some examples that we could see.

28:29Automation and food prep. So we're seeing a lot of restaurants install robotic systems to make food and people are like, oh, job loss, job loss. But let me just give you the counter side. The counter side is that the cost of your food drops in half. So suddenly, all the labor costs that's built into making the stuff you want to pick up. Everyone's freaking out right now about inflation. Oh my God, it's $8 for a cup of coffee. It's $8 for a latte. say, this is crazy, crazy, crazy. What if that dropped down to two bucks? You're going to be like, man, this is pretty awesome. What's good service and good experience and don't make it all dystopian.

28:58But suddenly there's going to be this like incredible reduction or deflationary effect in the cost of food. And we're already starting to see automation play its way in the food system to bring inflation down. And that's going to be very powerful for people. Shout out to Eatsick Cloud Cushions and CaféX. We all took swings at the bat at that exact concept is that it could be done better, cheaper, faster. And one of the amazing things of these vision action models that are now being employed, is you can rapidly learn using vision systems and then deploy automation systems in those sorts of environments, where you have a lot of kind of repetitive tasks that the system can be trained and installed in a matter of weeks.

29:35And historically, that would have been a whole startup that would have taken years to figure out how to get all these things together and custom program and custom code it. So the flip side is like when Uber hit, those people were not drivers. Think about the jobs that all those people had prior to Uber coming to market. And then the reason they drove for Uber is they could make more money driving for Uber or now driving for Uber. And the flexibility. Or Dordash and the flexibility. So their lifestyle got better. They had all of this more control in their life. Their incomes went up. And so there's a series of things that you are correct.

30:03Won't make sense in the future from a kind of standard of work perspective. But the right way to think about it is opportunity gets created. New jobs emerge. New industry. New income. Costs go down. And so I keep harping on this that it's really hard today to be very prescriptive to Sax's point about what exactly is around the corner. But it is an almost certainty that what is around the corner is more capital will be deployed. That means the economy grows. That means there's a faster deployment of growth of new jobs, new opportunities for people to make more money to be happier in the work that they do.

30:37And the flip side being things are going to get cheaper. So I know we're waxing philosophical here, but I think it's really key because you can focus on the one side of the coin and miss the whole other. And that's what I was doing. Journalist and one commentator and fear mongerers, too, is they miss that other side. Got it. Well said, Friedberg. Well said. I think I've heard Sacha turn this question around about job loss saying, well, do you believe that GDP is going to grow by 10 % a year? Because what are we talking about here? In order to have the kind of disruption that you're talking about where I don't know, 10 to 20 % of knowledge workers end up losing their jobs.

31:14AI's going to be such a profound force that's going to have to create GDP growth like we've never seen before. That's right. So it's easier for people to say, oh, well, trade percent of people are going to lose their jobs, but wait, we're talking about our world and where the economy's growing to a percent every year. Do you actually believe that? That's more income for everyone. That's new jobs being created. It's an inevitability. We've seen this in every revolution. You know, prior to the Industrial Revolution, 60 % of Americans worked in agriculture. culture. And when the tractor came around and factories came around, those folks got to get out of doing manual labor in the field where they were literally, you know, telling the fields by hand.

31:50And they got to go work in a factory where they didn't have to do manual labor to move things. Yeah, they did things in the factory with their hands, but it wasn't about grunt work in the field all day in the sun. And it became a better standard of living. It became you just and today came about five day work week. It went from a seven day And it's from seven to eight to five hundred hours a week to 45 50 hours a week to and now and I think the next phase Is we're gonna end up in less than 30 hours a week with people making more money and having more abundance for every dollar that they earn with Respect what they can purchase and the lives they can live that means more time with your family more time with your friends more time to explore Interesting opportunities.

32:25So you know, we've been through this conversation a number of times. I know I'm not no It's important to bring it up I think and yeah and really unpack it because the fear is peaking now sacks people are using this moment in time to scare people that hey the jobs are going to go away and they won't come back but what we're seeing on the ground sacks is I'm seeing many more startups getting created and able to accomplish more tasks and hit a higher revenue per employee than they did in the last two cycles so it used to be you know you try to get to a quarter million revenue per employee than 500 now we're regularly seeing startups hit a million dollars in revenue per employee something that that was rarefied air previously, which then speaks to your point, freeberg, that there'll be more abundance.

33:06There'll be more capital generated, more capital deployed. Because more capital deployed for more opportunities, but you're gonna need to be more resilient, I think. Yeah. I think it's actually very hard to completely eliminate a human job. The ones that you cited, and Jake, how you keep signing the same ones, because I actually don't think there's that many that fit in this category, the drivers, and maybe level on customer support, because those jobs are so model -ethic. But when you think about even like what a salesperson does, it's like, yes, they spend a lot of time with prospects, but they also spend time negotiating contracts, and they spend time doing post -sale implementation and follow -up, and they spend time learning the product and giving feedback.

33:47I mean, it's a multifaceted job, and you can use AI to automate pieces of it, but to eliminate the whole job is actually very hard. And so I just think this idea that, boom, 20 % of the workforce is going to be unemployed in two years. I just don't think that it's going to work that way. But look, if there is widespread job disruption, then obviously the government's going to react. And we're going to be in a very different societal order. But my point is, you want the government to start reacting now before this is actually happening. Yeah, we don't need to be pre -cogs and predicted. It's a total power grab.

34:19It's a total power grab to give the government and these organizations more power before the risk is even manifested. And let me say this as well with respect to all these regulations that were created the 100 page by Neo and the 200 page diffusion rule none of these Regulations solve the X -RUS problem none of these things actually would prevent the most existential risks that we're talking about I'm happy for alignment. They don't sign for us. The kill switch Yeah, what someone actually figures out how to solve that problem. I'm all ears, you know, I look I'm not Cavalier about these risks. I understand that they exist but I'm not in favor of the fear I'm not in favor of giving all this power to the government before you even know how to solve these problems.

35:01Tomah, you did a tweet about entry -level jobs being toast. So I think there is a nuance here and both parties could be correct. I think the job destruction is happening as we speak. I'll just give one example and then drop to you, Tomah. One job in startups that's not driving a car or a super entry level was people would hire consultants to do recruitment and to write job descriptions. Now, I was at a journalist and I talked to a bunch of founders here in Singapore and I said, how many people have used AI to write a job description? Everybody's hand went up. I said, how many of you with that job description was that job description better than you could have written or any consultant?

35:37They all said, yes, 100 % AI is better at that job. That was a job, a high level HR recruitment job or an aspect of it's act. So that was half the job, a third of the job, to your point, the chores are being automated. So I do think we're going to see entry level jobs, Shemaaf, the ones that get people into an organization, maybe they're going away. And was that your point of your tweet, which we'll pull up right here? If a GPT is a glorified auto -complete, how did we use to do glorified auto -complete in the past? It was with new grads. New grads were our auto -complete. And to your point, the models are good enough that it effectively allows a person to rise in their career without the need of new grad grist for the mill, so to speak.

36:27So I think the reason why companies aren't hiring nearly as many new grads is that the folks that are already in a company can do more work with these tools. And I think that that's a very good thing. So you're generally going to see OPEX as a percentage of revenue shrink naturally and you're going to generally see revenue per employee go up naturally. But it's going to create a tough job market for new grads in the established organizations. And so what should new grads do? They should probably steep themselves in the tools and go to younger companies or start a company. I think that's the only solution for them.

37:04The most important thing for whether there are jobs available for new grads or not is whether the economy is booming. So obviously in the wake of a financial crisis, the jobs dry up because everyone's cost -cutting and those jobs are the first ones to get cut. But if the economy is booming then there's going to be a lot more job creation. And so again if AI is this driver and a neighbor of tremendous productivity that's going to be good for economic growth and I think that that will lead to more company formation, and more company expansion at the same time that you're getting more productivity.

37:39Now, to give an example, one of the things I see a lot discussed online about these coding assistants is that they make junior programmers much better. Because, you know, if you're already like a 10X programmer very experienced, you already knew how to do everything. And you could argue that the people who benefit the most are the entry level coders who are willing to now embrace the new technology and it makes them much more productive. So in other words, it's a huge leveler, and it takes an entry level coder and makes them five, extra 10x better. So look, this is an argument I see online. The point is just, I don't think we know how this cuts yet.

38:17I agree. And I just think there's like this, this doom orism is premature and it's not a coincidence that it's being funded and motivated by this hardcore ideological element. I'll tell you my hiring experience. We have about 30 people at 80, 90 and the way that I have found it to work the best is you have seen your people act as mentors and then you have an overwhelming corpus of young very talented people who are AI native. And if you don't find that mix, what you have instead are L7s from Google and Amazon and Meta who come to you with extremely high salary demands and stock demands and they just don't thrive.

39:01And part of why they don't thrive is that they push back on the tools and how you use them. They push back on all these things that the tools help you get to faster. This is why I think it's so important for the young folks to just jump in with two feet and be AI native from the jump because you're much more hierarchical, frankly, to the emergent company. And the bigger companies, you'll have a lot of these folks that see the writing on the wall may not want to adapt as fast as otherwise. Another way, for example, that you can measure this, is if you look inside your company on the productivity lift of some of these coding assistance for people as a distribution of age, what you'll see is the younger people leverage it way more and have way more productivity than older folks.

39:44And I'm not saying that as an ages comment, I'm saying that it's an actual reflection of how people are reacting to these tools. What you're describing is a paradigm shift. It is a big leap. It's like, when I went to college, when I took computer science, it was object oriented programming. It was like C++, it was compiled languages, it was gnarly, it was nasty work. And then you had these high level abstracted languages. And I used to remember, at Facebook, I would just get so annoyed because I was like, well, I was using PHP and Python, this is like not even real. But I was one of these old light -lights who didn't understand that I just had to take the leap.

40:18And what it did was it grew the top of the funnel of the number of developers by 10x. And as a result, what you had were all of these investments for the internet. And I think what's happening right now is akin to the same thing, where you're going to grow the number of developers upstream by 10X. But in order to embrace that, you just have to jump in with two feet. And if you're very rigid in how you think the job should be done technically, I think you're just going to get left behind. Just a little interesting statistic there. Microsoft announced 6 ,000 job layoffs, about 3 % of their workforce while putting up record profits, while being an incredible cash position.

40:53I mean, total confirmation bias. It's like now every time there's a layoff announcement, people try to tie it to AI to see this doomer story. I don't think that's an AI story. Well, actually, I don't think it's an AI story. I think it is because the people they're eliminating are management. And I think the management layer becomes less less. It's a good idea. It was entry level employees. Now you're saying it's management. This is total confirmation bias. I think those are, no, no, I think those are two areas that specifically get eliminated. Entry level, it's too hard, it's too hard to give them the grunt work and then for the managers who are old and it's not been the first 20 years.

41:26Hold on. Let me finish. For those people, I think they are necessary in this new AI management. What are you talking about? What is the AI agent that's doing management right now in companies? Oh, when you're, it doesn't even make sense. Oh, no, it totally does. There are tools now that are telling you, these are the most productive people in the organization from off just outline who's shipping the most, et cetera, who's using the tools. And then people we're saying, well, why do we have all these highly priced people who are not actually shipping code who are L7s? You're totally following for some sort of narrative here.

41:58This makes no sense. I don't think I am. Yeah. Let me be very clear what I'm saying. What I am saying is AI natives are extremely productive. They use these tools. They're very facile with them. I think it's very reductive, but what you see is the older or more established in your career, you are in technical roles. what I see is that it's harder and harder for folks like that to embrace these tools in the same way. Now, how does it play out in terms of jobs? I think that just these tools are good enough where the net new incremental task oriented role that would typically go to a new grad, a lot of that can be defraided by these models.

42:38That's what I'm saying very clearly. And I don't think that speaks to management. I agree with Sachs. But nothing to do with that. Sergei said, freeberg, when he came to our F1, that management would be the first thing to go. I was talking to some entrepreneurs last night, again, here in Singapore, and they are taking all the GitHub and Injira cards and things that have been submitted, plus all the slack messages in their organization, and they're putting them into an LLM and having it right, management reports of who is the most productive in the organization, and in the new version of Windows, it's monitoring your entire desktop freeberg.

43:11management is going to know who in the organization is actually doing work, what work they're doing, and what the result of that work is through AI. That is the future of management and you take out all bias, all, you know, loyalty and the AI is going to do that. You couldn't disagree with you more sacks on that, but Freiburg, you wanted to wrap this up on the scene. My point is that AI, the managers are not losing their job because the AI is replacing them. I didn't say that AI wouldn't be a valuable tool for managers to use. Sure. AI would be a great tool for managers But we're not anywhere near the point where managerial jobs are being eliminated because they're getting replaced by AI agents We're at salt the chatbot stage of this Literally Sarge said he took their internal slack Went into like a dev conversation said who are the underrated people in this organization?

44:01We deserve a raise and it gave him the right answer Wait, that doesn't allow you to cut 6 ,000 people. I think it's happening as we speak. No, you're not over You've you fell for this narrative you grasped onto this Microsoft Restructuring where they eliminated 6000 rolls and you're trying to attribute that to AI now I think it has to do with AI I think management is looking at it saying we are going to replace these positions with AI We might as well get rid of them now. It is in flux. We'll see who's right in the coming months Can I make another comment? Freeberg wrap this up here so we can get on to the next topic.

44:31This is a great topic So I want to make one last one I want to make one last point which I think please and sex you may not appreciate this So we can have a healthy argument about this. I think in the same way that all of this jobs are gonna get lost to AI, fear mongering, there's a similar narrative that I think is a false narrative around there's a race in AI that's underway between nation states. And the reason I think it's false is if I asked you guys the question, who won the Industrial Revolution? The Industrial Revolution benefited everyone around the world. There are factories and there's a continuous effort and continuous improvements in manufacturing processes worldwide.

45:09That is a continuation of that revolution. Similar, if I asked, who won the internet race? There were businesses built out of the US, businesses built out of China, businesses built out of India, and Europe that have all created value for shareholders, created value for consumers, changed the world, etc. And I think the same is going to happen in AI. I don't think that there is a finish line in AI. I think AI is a new paradigm of work, a new paradigm of productivity, and new paradigm of business, of the economy, of livelihoods, of pretty much everything every interaction humans have with ourselves and the world around us will have, and it's substrate AI.

45:46And as a result, I think it's going to be this continuous process of improvement. So I'm not sure, look, there are different models and you can look at the performance metrics of models, but you can get yourself spun up into a tizzy over which model is ahead of the others, which one's going to quote get to the finish line first. But I think at the end of the day, the abundance and the economic prosperity that will arise from the continuous performance improvements that come out of AI and AI development will benefit all nation states. And actually could lead to a little bit more of a less resource constrained world where we're all fighting over limited resources.

46:17And there's nation state definition to run who has access to what and perhaps more abundance, which means more peace and less of this kind of resource driven world. So your thought on the Kumbaya theory, which was by free bird. Yeah, exactly. I all partially agree in the sense that I don't think the AI race is a finite game. It's an infinite game. I agree that there's no finish line, but that doesn't mean there's not a race going on. So for example, an arms race would be a classic example of a competition between countries to see who is stronger, to basically a mass power. And they might be neutralizing each other.

46:57the balance of power may stay in equilibrium even though both sides feel the need to constantly up level their arms, their power. And so I think that to use the term that Mirchheimer used at the All in Summit, we are in an iron cage. The US and China, the two leading countries in the world, economically, militarily, technologically, they both care about their survival. the best way to ensure your survival in a self -help world is by being the most powerful. And so these are great powers who care a lot about the balance of power and they will compete vigorously with each other to maintain the greatest balance of power between them.

47:38And high tech is a major dimension of that competition and within high tech AI is the most important field. So look, there is going to be an intense competition around AI. Now the question is how does that end up? I mean, it could end up in a tie or in it could end up in a situation where both countries benefit maybe open source wins Maybe neither side gains a decisive advantage, but they're absolutely going to compete because neither one can afford to take the risk That the other one will develop a decisive advantage. Prisoners dilemma nuclear proliferation is a good analogy. I would argue nuclear deterrence led to a more peaceful world in the 20th century I mean, is that fair to say sacks that ultimately what happened with nuclear is that the actual underlying technology hit an asymptote, a plateaued.

48:25And so we ended up in a situation where, in the case of the United States versus the Soviet Union, where both sides had enough nukes to blow up the world many times over. And there wasn't really that much more to innovate. So the underlying technological competition had ended. The dynamic was more stable, and they were able to reach an arms control framework to sort of control the arms race. right? I think AI is a little different. We're in a situation right now where the technology is changing very, very rapidly and it's potentially on some sort of exponential curve and so therefore being a year ahead, even six months ahead, good results in a major advantage.

49:02I think under those conditions, both sides are going to feel the need to compete very vigorously. I don't think they can sign up. But this is a system of productivity, right? For an agreement to slow each other down. I just don't clear was not a system of productivity. It was not a system of economic growth. It was a system of literally destruction. And this is quite different. This is a system of making more with less, which unleashes benefits to everyone in a way that perhaps should be calming down the conflict and tension. You got to admit that there is a potential dual use here. There's no question that the armies of the future are going to be drones and robots and they're going to be AI powered.

49:37Yeah. And as long as that's the case, these countries are going to compete vigorously to have the best AI and they're going to want their leaders or national champions or starps and so forth to win the race. What's the worst case, Sacks? If China wins the AI race, what is the worst in the scenario? What does that mean? What does that mean? What I'm asking? What would that scenario be? Would they invade America and they dominate us forever? What does it mean to win? To me, it would mean that they achieve a decisive advantage in AI such that we can't leapfrog them back. And an example of this might be something like 5G where Huawei somehow leapfrog dust got to 5G first and disseminated it through the world.

50:22They weren't concerned about diffusion. They were interested in promulgating their technology throughout the world. So if the Chinese win AI, they will sell more products and services around the globe than the US. This is where we have to change our mindset towards diffusion. I would define winning as the whole world Consolidates around the American tech stack they use American hardware in Data centers that again are firmly powered by American technology and you know just look at market share Okay, if we have like eighty to nine percent market share that's winning if they have a percent market share then we're in big trouble So it's very simple it means like if the market grows up by 10x It doesn't matter because the world will have every individual in every country will now have more they will have a more prosperous life And as a result, it's not necessarily the framing about if we don't get there first We are necessarily going to lose I get that there's an edge case of conflict or what have you but I do think that there's a net benefit where the whole world suddenly is in this more prosperous state and This is a classic example of a dual use technology where there are both economic benefits and there are military benefits.

51:29Yes. GPS would come to mind in this example, right? Like my summary point is just that it's not all about a losing game with respect to this quote race with other nation states. But at the end of the day, yes, there is risk. But I do think that if the pace of improvement stays on track like it is right now, holy shit, I think we're in a pretty good place. That's just my positive. Yeah. Okay. Okay. I hope that the AI race stays entirely positive and it's a healthy competition between nations and the competition spurs them on to develop more prosperity for their citizens. But as we talked about the AI summit, there's two ways of looking at the world.

52:07There's kind of the economist way that Jeffrey Sachs was talking about. And then there's the balance of power way or realist way, which Mirchandr was talking about. And when economic prosperity and survival or balance of power come into conflict, It's the realest view of the world that it's the balance of power that gets privileged. And I just think that's the way that governments operate. Is that prosperity is incredibly important? We want economic success, but power is ultimately privileged over that. And this is why we're going to compete vigorously in high tech. That's why there is going to be an AI race.

52:43Okay. Perfect segue. We should talk a little bit about what was the topic of discussion yesterday. I had a lunch with a bunch of family offices and capital allocators, government folks here in Singapore. And they were talking about our discussion last week about the big, beautiful bill and the debt here in the United States. It's permeating everywhere. The two conversations at every stop I've made here is the big, beautiful bill and the balance sheet of the United States as well as tariffs. So we need to maybe revisit our discussion last week. Chimoff you had in Freiburg did an impromptu call with Ron Johnson over the weekend, which then spurred him going on.

53:2420 other podcasts to talk about this. Steven Miller from the administration has been tweeting some corrections or his perceived corrections about the bill. And Sachs, I think you've also started tweeting this. Where do we want to start? Maybe... Well, I think there are just a couple of facts that should be cleaned up because. Okay. So facts from the administration, their view of our discussion. Well, even though I was defending the bill last week on the whole, I wasn't saying it was perfect. I was just saying it was better than the status quo. Yeah, you were clear about that, yeah. Yeah. But even I, in doing that, was conceding some points that I think were just factually wrong.

54:03And the big one was that I said I was disappointed that the the doge cuts weren't included in the big, beautiful bill. What Stephen Miller has pointed out is that reconciliation bills can only deal with what's called mandatory spending. They can't deal with what's called discretionary spending. And since the doge cuts apply to discretionary spending, they just can't be dealt with in a reconciliation bill. If we dealt with separately, there can be a separate recision bill that comes up, but it can't be dealt with in this bill. And just to be very clear, look, if the doge cuts don't happen through recision, I'm to be very disappointed in that.

54:36I really want the doge cuts to happen. But it's just a fact that the doge cuts cannot happen in the big, beautiful bill. It's not that kind of bill. And I think it's therefore wrong to blame big, beautiful bill for not containing doge cuts when the Senate rules don't allow that. You know, it all goes back to the bird rules. There are only specific things that can be dealt with through reconciliation, which is this 50 vote threshold. And it has to be quote unquote mandatory spending. discretionary cuts are dealt with in annual appropriations bills that require 60 votes. Now look, this is kind of a crazy system.

55:10I don't know exactly how it evolved. I guess Robert Bird is the one who came out with all this stuff and maybe they need to change the system, but it's just wrong to blame the big, beautiful bill for not containing the doge cuts. That's just a fact. Okay. So the other thing is that the BBB does actually cut spending. It's just not scored that way because when the bill removes the sunset provision from the 2017 tax cuts, the CBO ends up scoring that as effectively a spending increase. But tax rates are simply continuing at their current level. In other words, at this year's level. So if you used the current year as your baseline, okay, and then compared it to spending next year, it would score as a cut in spending.

55:55So it's just not correct to say the So increase the spending. It does actually result in a mandatory spending cut, but it's not getting credit for that because we're continuing the tax rates at the current year's rates. Do you believe, SACs, that this administration, which you are part of, in four years, will have spent, will have balanced the budget, will it have reduced the deficit, or the deficit to can you to grow at $2 trillion a year? What is your belief? because there's a lot of strategy going on here. Yeah, my belief is that President Trump came into office inheriting a terrible fiscal situation.

56:33I mean, basically, what happened? That he created and that Biden created. I don't think he created it there. They both put a trillion on the debt. That's just fact. Okay, it's a big difference. It's a big difference to add to the deficit when you're in the emergency phase of COVID. Okay, I'm giving them all the good for that. Sure. It's emergency spending. It was never supposed to be permanent. And then somehow Biden made it permanent. And he wanted a lot more. Remember, build back better? He wanted a lot more. So you know, it's tough when you come into office with a, what is $2 trillion annual deficit.

57:01So to my original question, I look hold on. Would I like to see the deficit eliminated in one year? Yeah, absolutely, but there's just not the votes for that. Well, I asked you before. There's a one vote margin here in the house and the Democrats aren't cooperating in any way. So I think that the administration is getting the most done that it can. This is a mandatory spending cut. And I think the doge cuts will be dealt with hopefully through rescission in a subsequent bill. I'm asking you about four years from now We'll be sitting here in four years. We'll Trump have cut spending by the end of this term in another three and a half years What would be looking at a balanced budget?

57:37Potentially is that the goal of the administration or will we be at 42 44 45 trillion dollars at the end of Trump's second term? David said if you want that level of specificity you're gonna have to get Scott Besson on okay This is just not my area. I'm not going to pretend to have that level of detailed answers. But what I believe is that The term administration policy is to spur growth. I think that these tax policies will spur growth I think that AI will also be a huge tailwind. It'll be a productivity boost I think less stopping dooms about it. We need that productivity boost And I think that the net result of those things will be to improve the fiscal situation Do I want more spending cuts?

58:16Yeah, but look we're getting more than was represented last week Let's put it that way. Okay, fair enough, Sachs. Thank you for the clean up there. Chimoff, our bestie Elon was on the Sunday shows and he said, hey, the bill can be big or it can be beautiful. It can't be both. He seems to be, I'll say, displeased or maybe not as optimistic about balancing the budget and getting spending under control. But he still believes in Doge, obviously, and hopefully Doge continues. You seemed a little bit concerned last week, a week's past. You've heard some of Stephen Miller's opinions. Where do you net out seven days from our big beautiful budget bill debate last week?

58:57Are we going to go? I mean, I think Stephen's critique of how the media summarized the reaction to the bill is accurate. And I think it's probably useful to double -click into one thing that SACs didn't mention, but that Stephen did. A lot of this pivots around the CBO, which is the Congressional Budget Office, and how they look at these bills. And there's a lot of issues with how they do it. In one specific case, which SACs just mentioned, and Stephen talked about, is that they have these arcane rules about the way that they score things, and what they were assuming is that the tax rates would flip back to what they were before the first Trump tax cuts, which obviously would be higher than where they are today.

59:54What that would mean in their financial model is we were going to get all that money. Now to maintain the tax cuts where we are, they now then would look at that and say, Oh, hold on, that's a loss of revenue. Why are all of these things important? I downloaded the CBO model, went through it, and what I would say is, at best, it's Spartan, which means that I don't think a financial analyst or somebody that controls a lot of money will actually put a lot of stock in their model. I think what you'll have happened is people will build their own versions bottoms up. Do you trust it? the CBI version of this or do you largely trust it?

1:00:37I don't think the CBI really knows what's going on to be totally honest with you. Okay. I think that there are parts of what they do, which they're also opaque on. Nick, I sent you a tweet from Goldman Sachs. So here's what Goldman put out. Now the point is when you build a model, what you're trying to do is net out all of these bars. You're trying to add the positive bars and the negative bars and you figure out what is the total number at the end of it. Now, in order to do that, when you see the bars on the far right, that's a $20, $34. That's very different than a $20, $25. The CBO doesn't disclose how they deal with that.

1:01:14They don't disclose the discount rate, so you can question what that is. The CBO makes these assumptions that, you know, I Steven pointed out, are very brittle with respect to the tax plan. That's not factored in here. So those are the issues with the way the CBO scores is. So you have to do it yourself. Now, Peter Navarro published an article which I think is probably the most pivotal article about this whole topic. Peter Navarro of Tariffin. Yeah. Here, I think he nails it right in the bullseye, which is the bond market needs to make a decision on one very critical assumption when they build their own model.

1:01:53Okay? So let's ignore the CBO's kind of brittle math and the Excel that they post on their website. People are going to do their own because they're talking about managing their own money. But Navarro basically points to the critical thing, which is listen, those CBO assumptions also include a fatal error, which is they assume these very low levels of GDP. What you're probably going to see in Q2 is a really hot GDP print. If I'm a betting man, which I am, I think the GDP print's going to come in above three, not quite four, but above three. And so what Peter is saying here is, hey guys, like you're estimating 1 .7 % GDP.

1:02:32Why don't you assume 2 .2 or why don't you assume 2 .7 or any number? Or really what he's saying is why don't you build a sensitivity so that you can see the implications of that? And I think that that is a very important point. Okay, so where do I net out a week later Jason? It's pretty much summarized in the tweet that I posted earlier today. So over the last week as people have digested it, I think that there are small actors in this play and big actors. The biggest actor is obviously President Trump, but the second biggest actor is the long end of the bond market. These are the central bankers, the long bond holders and these macro hedge funds.

1:03:11Why? Because they will ultimately determine the United States' cost of capital. How expensive will it be to finance our deficits? irrespective of whatever the number is, it could be a dollar or it could be a trillion dollars. That doesn't matter right now. The point is what is going to be our cost of capital? And what's happened over the last little while is that they've steeped in the curve and they've made it more expensive for us to borrow money. That's just the fact. So how do we get in front of this? I think the most important thing, if you think about what Peter Navarro said is, This plan and the bill can work if we get the GDP right.

1:03:53Okay? So how do you get the GDP right? And this is where I have one very narrow set of things that I think we need to improve. And the specific thing that I'll go back to is today, America, is at a supply demand tradeoff on the energy side. What does that mean? We literally consume every single bit of energy that we make. We don't have slack in the system. We are growing our energy demands on average about 3 % a year. So I think the most critical thing we need to do is to make sure the energy markets stay robust. I mean, there's a lot of investment that people are making on Tuesday. I announced a deal that I did building a one gigawatt data center in Arizona.

1:04:43There's a lot of money. This is little old me, but there are lots of people ripping in huge, huge, huge checks, hundreds of billions of dollars. I think the sole focus has to be to make sure that the energy policy of America is robust and it keeps all the electrons online. If there's any contraction, I think it'll hit the GDP number because we won't have the energy we need And that's where things start to get a little funky. So I think where I am is I think President Trump should get what he wants I think the bill can work Narell Lee addressed the energy provisions and I think we lift to fight another day.

1:05:18So Friedberg cynical approach might be we're working the refs here the CBO is not taking into GDP the GDP, this GDP has a magical unicorn in it. AI and energy is going to spur this amazing growth. But the bond markets don't believe it either. So are we looking at just a GOP, a party, I'll put the administration aside, that is just as recklessly spending as the Democrats and they want to change the formula by which they're judged in the future that there's going to be magically all this growth and growth solves all problems. and what we really need to do to your point, I think two weeks ago, that this is just disgraceful to put up this much spending, and we have to have austerity, and we need to increase maybe the discipline in the country, and both parties have to be part of that.

1:06:08I'm asking you from the cynical perspective, maybe to represent or steal them on the other side here. We had a conversation with Senator Ron Johnson after we recorded the pod last week, And he was very clear in a key point, which is that this bill addresses mandatory spending. Just to give you a sense, 70 % of our federal budget is mandatory spending. 30 % falls into that discretionary category. The mandatory spending is composed of the interest on the debt, which is now well over $1 trillion a year, on its way to $1 trillion five, almost $1 trillion a year. Medicare Medicaid, Social Security, and some other income security programs.

1:06:50And as Ron Johnson shared with us over the years, more and more programs have been put into the mandatory spending category. And so you can get past the filibustering in the Senate to be able to get budget adjustments done. The key thing he's focused on and Rand Paul is focused on, and I've talked about is the spending level of our mandatory programs. The big, beautiful bill proposes a roughly $70 billion per year cut in Medicaid. Okay, and that sounds awful. How could you do that to people in 2019, the year before COVID, Medicaid spending was $627 billion. 2024, it was 914 billion. So the $70 billion cut gets you down to 840.

1:07:34You're still roughly call it 40 % above where you were in 2019. So is that the right level? And fundamentally, the opportunity to cut those mandatory programs, which I know sounds awful to cut social security being cut Medicaid, but the reality is they're not just being cut from a low level. They're being cut from a level that's 60 plus percent higher than they were in 2019. I gave you another example, which is the SNAP program, the food stamp program. Again, $15 billion of the 120 a year that we spend on food stamps is being used to buy soda and a whole other chunk of that 120 is being used to buy other junk food.

1:08:11So they have proposed in this bill to cut snap down to 90 and it was 60 in 2019. So it's still 50 % above where it was in 2019. So the key point that's being made by Ron Johnson and others is that the spending on these mandatory programs, which account for nearly three quarters of our federal budget, are still very elevated relative to where we were in 2019. And we are not going to get out of our deficit barring a massive increase in GDP without changes to the spending level. Now, I don't put the blame on the White House. This bill passed with one vote in the House, one vote. And so a key point to note, and I've said this from day one, and every time I've gone to DC and every time we've talked about Doge, I've said there's no way any of the stuff's gonna change without legislative action from the Congress.

1:09:02And here we are, seeing Congress for whatever reason, you can listen to Ron Johnson, you can listen to Ram Paul, you can listen to others, say, you know what, we can't cut that deep. It is going to be too harmful to our constituents. We need to keep the programs at their current levels or make no changes at all or only modest changes. And that's where we are. That's the reality. Now I do think that Navarro did an excellent job in his op -ed for whatever criticism we may want to lay on Navarro for many other things. He pointed out that the CBO projections in 2017 for the next year's GDP growth numbers was 1 .8 to 2%.

1:09:37And it actually came in at 2 .9%. A full one point higher because of the Tax and Jobs Act that was passed by the Trump administration in 2017. So the additional money that goes into investments because lower taxes are being paid, fueled GDP growth. This is what some people call trickle down economics. People ridicule it. They say it doesn't work. It's not real. But in this particular instance they cut taxes and the GDP grew much faster than was projected or estimated by the economists at the CBO So the argument that's being made is that we are not capturing many of the upsides in the GDP numbers that are being projected and I will be honest about this I don't think anyone's knows how much the GDP is gonna grow We don't know the economic benefit and effects of AI we don't know the economic benefit benefits and effects of the work that's being done to deregulate.

1:10:30Another key point, which is not talked about by Navarro or anywhere else, there's a broad effort to deregulate standing up new energy systems, deregulate industry and pharma, deregulate banking, best in talking about this in our interview with him. All of those deregulatory actions theoretically should drive more investment dollars because if you can get a biotech drug to market in five years instead of 10, you'll invest more in developing new biotech drugs. If you can stand up a new nuclear reactor in seven years instead of 30, you'll build more nuclear reactors. Money will flow. If you can get a new factory working because it's a lot easier and faster to build the factory in cheaper, you'll build more factories and production will go up.

1:11:13People were really taken by the way by your comment that you would shut up about the deficit if we had like a really great energy policy when we're dumping a lot on top of it. I want to build on the point that both Chimata and Fribur made about growth rates. So there's a very important chart here from Fred. This is the Federal Reserve of St. Louis. This is Federal receipts. So basically it's Federal tax revenue as a percent of GDP. And this goes all the way back to the 1930s, 1940s. So if you look in the post World War II period, you can see just eyeballing it that there's a lot of variation around this.

1:11:49but the line is around 17 .5%, plus or minus 2%. And the interesting thing is that this chart reflects radically different tax rates. So for example, during some of these periods, we've had 90 % top marginal tax rates. We had 70 % top marginal tax rates. So yeah, under Jimmy Carter, the top marginal tax rate was, I think, 70%. We've had tax rates under Reagan or Clinton. in the 20s. So the point is that the tax rate that you have and what you actually collect as a percent of GDP don't correlate. The most important thing by far is just how the economy is doing. If you look at the top tick, it's around 2000 there.

1:12:35If you just mouse over it. 1999 to 2000. Yeah, we get like just under 20 % of federal C -sub percent of GDP. And tax rates were quite low back then. The reason why is we had an economic boom. So look, the point is the most important thing in terms of tax revenue is having a good economy. And this is why you don't just want to have very high tax rates because they clobber your economy. So this point that Navara was making in that article, it actually makes sense. I mean, 1 .7 % is a pretty tepid growth assumption. We should be able to grow a lot faster. And if we have a favorable tax policy, you can grow a lot faster.

1:13:11Now, if you go to spending, you can pull of the Fred chart on spending. What you see here is that it means it's been kind of going up, but let's say that since the 1970s or so, federal net outlays as a percent of GDP, so basically spending was around 20 % of GDP. And then what happened is during COVID, it went crazy, went all the way up to 30%, and now it's back down to low 20s, but it's still not back down to 20. And what we need to do is grow the economy. We have to grow GDP to the point where federal net outlays are back around 20%. If you could get tax revenue to the historical mean of around 17 .5%, or 17%, you get spending to 20%, then you have a budget deficit of 3%, which is much more tolerable.

1:13:56And I think that's best since Target under his 333 plan, right? Is you get GDP growth back up to 3 % and you get the budget deficit down to 3%. All right, Jimovia, you had some charts you wanted to share? Well, I think what's amazing is if you take last week and now again this week we're all converging on the same thing. The path out of this is through GDP growth. And I just want everybody to understand where we are. And this is without judgment, this is just the facts. what this chart shows in gray is the total supply of power in the United States. And the blue line is the utilization. So what you build for is what you think is a premium above the demand, right?

1:14:50You'd say if there's one unit of demand, let's have 1 .2 units of supply, will be okay. But as it turns out historically in the United States, we've had these cycles where we didn't really know what the demand curve would look like. And so over the last number of years, we've stopped really building supply in power. But what happened with things like AI and all of these other things is that the demand just continued to spike. And so what this chart shows is we are at a standstill sitting here today in 2025. On margin, we're actually short power, which is to say sometimes there are brownouts, sometimes there's lack of power because we didn't add enough capacity.

1:15:35So that's where we are today. So then we talk about all of these new kinds of energy. And this is just meant to ground us in the facts. If you've tried to turn on a project today, sitting here in May of 2025, here's what the timelines are. We all talk about SMRs, small modular reactors. The reality is that if you get everything permitted and you believe the technology can be de -risked, you're still in a 2035 plus timeframe. You're a decade away. If you have an unplanned nat gas plant, today the fastest you could get that on is four years from now. If we try to restart a mothball nuclear reactor of which there are only three we can restart, that's a 2027 to 2030 time frame.

1:16:28So let's give us the benefit of the doubt. That's two years away. If we needed a planned nat gas plant, there's already 24 gigawatts in the queue, which can't get turned turned on. So where does this end up? And this is where I think we need to strip away all the partisanship and understand what we're dealing with. We have ready supply of renewable and storage options today. It's the fastest thing that you can turn on. It allows us to turn on supply to meet the demand and utilization. So I just think it's important to understand and that we must not lose energy. We cannot lose the energy market because that is the critical driver of all the GDP.

1:17:11All right, Nipon Steel and the US Steel merger got cleared by President Trump. This was something that was being blocked by Biden, obviously, for national security reasons. Nipon is gonna require a year's steel 14 .9 billion. Biden blocked that as we had discussed. On Friday, Trump cleared the deal to go through calling it a partnership that will create 70 ,000 jobs in the US. and on Sunday Trump called the deal an investment saying it's a partial ownership but it will be controlled by the USA. Tremont, there seems to be a reframing of this deal and that the United States is going to benefit from it but it's not a sale.

1:17:44Let's set some context. Yeah, let's set some context. The United States is always on the wrong side of these deals. Okay, we've been on the wrong side for 20 years meaning we show up when an asset is stranded or completely run into the ground. For example, we did the auto bailouts at the end of the great financial crisis. If it's not a company and there's toxic assets, we set up something called tarp. What do we get? Not much in return. In this, it's the opposite. And I think that this strategy has worked for many other countries really well. So if you look at Brazil, companies like Embrere and Vale, which are really big Brazilian national champions, have a partnership, a pretty tight coupling with the Brazilian government.

1:18:30The Brazilians have a golden vote. If you look inside of the UK, there's a bunch of aerospace and defense companies, including Rolls -Royce, that have a very tight coupling with the UK government. They have a golden vote. If you look in China, companies like Bike Dance and CATL have a very tight coupling with if the Chinese government and the Chinese government has a golden vote. And so what are all of those deals? Those deals are about companies that are thriving and on the forward foot. And so I think this is a really important example of things that we need to copy. I've said this before, but one part of China that I think we need to pay very close attention to is Hu Jintao in 2003 laid out a plan and he said we are going to create 10 national champions in China in all the critical industries that are going to matter for the next 50 years, including things like batteries and rare earths and AI, and they did it, but for those companies that allowed them to thrive and crush it.

1:19:28And I think that we need to do that and compete with those folks on an equal playing field. So in all industries or in very specific strategic ones, because that would seem like corrupting capitalism and free markets would be the steel man. There's 10 industries that matter. And you could throw them steel as one. I think the precursors for pharmaceuticals are absolutely critical. I think AI is absolutely critical. I think the upstream lithography and EV deposition and chip making capability, absolutely critical. I think batteries are absolutely critical and I think rare earths and the specialty chemical supply chain, absolutely critical.

1:20:11If you have those five, you are being control of your own destiny. In the sense that you can keep your citizens healthy and you can make all the stuff for the future. So I think if the president is creating a more expansive idea beyond US deal with this idea of US support, maybe they'll be preferred capital in the future to US deal. But if he creates a category by category thing across five or six of these critical areas of the future, I think it's super smart and we should do more of it. Sax, what do you think? Interventionism, putting your thumb on the scale, golden votes, a good idea for America in very narrow verticals or let the free market decide what your thoughts on this golden vote, having a board seat, et cetera.

1:20:56Well, it depends what the free market so to speak produced. And the reality is over the past 25 years, is we exported a lot of this manufacturing capacity to China. And I don't think it was a free market because they had all these advantages under the WTO that we talked about in previous podcasts. They were able to subsidize their national champions while still remaining compliant with the WTO rules because supposedly they were a developing country. It was totally unfair. And what they would do is through these subsidies, they would allow these national champions to essentially dump their products to the global market and drive everyone outside of business.

1:21:30They became the low -cost producers. I think that as the president just said recently, not every industry has to be treated as strategic. close and toys, we don't necessarily have to reach or in the United States, but steel production is definitely strategic. Steel, aluminum, and I'd say the rare earths, we have to have that capacity, we cannot be completely dependent on China for our supply chain. So, some of these industries have to be reached short, and if you need subsidies to do it, I think that you do it for national security reasons, first and foremost. There are other industries where the private market works just fine, and what we need to do to help those companies is simply not get in their way with unnecessary red tape and regulations.

1:22:11So I would say I'm power the free market when America is the winner and then in other areas where they're necessary for national security then you have to be willing to basically protect our industries. Freeberg, it seems like the great innovation here might also be the American public getting upside when we gave loans to Selintra and Tesla and Fiskar and a bunch of people for or battery -powered energy under Obama, we just got paid back in some cases by Elon, other people defaulted, but we didn't get equity. What if we had, instead of getting our 500 million back on the loan from Elon, which he paid back early and with interest, if we got half back and we got half in equity, RSU, whatever, sock options, warrants, this would be an incredible innovation.

1:22:56So what are your thoughts here? Because people look to this podcast as, hey, the free market podcast, but this does seem to be a notable exception here of maybe we should get involved and do these golden, you know, share votes, board seats, you know, maybe more creative structures in order to win faster. What are your thoughts, creeper? I don't like it. I don't like the government. Keep the government out of the markets. It creates a slippery slope. First of all, I think markets don't operate well if government's involved, it gets inefficient. and that hurts consumers, it hurts productivity, it hurts the economy.

1:23:35Second, I think it's a slippery slope. You do one thing now. One question though. If government non -intervention results in all of the steel production moving offshore, if it results in all the rare earth processing and the rare earth magnet casting industries, moving offshore, in fact, not just moving offshore, but moving to an adversarial nation, such that they can just switch off our supply chain for pretty much every electric motor. Is that an outcome of the quote unquote free market that we should accept? Well, then I think that's where the government can play a role in trade deals to manage that effect.

1:24:12So you can create incentives that will drive unsure manufacturing by increasing the tariff or restricting trade with foreign countries so that there isn't a cheaper alternative, which is obviously one of the plays that this Trump administration is trying to do. So I'd rather have that mechanism than the government making actual market -based decisions and business decisions. You know how inefficient government runs. You know how difficult it is to assume that that bureaucracy is actually ever going to act and pick any best interest or any good interest at all. They're just going to get all up.

1:24:42So I'd rather keep the government entirely out of the market, create a trade incentive or the trade incentive basically will drive private markets, private capital to build that industry on shore here because there isn't one and there's demand for it because you've restricted access to the foreign market. That I think would be the best general solution, sex. And then I think it's a slippery slope, because then you could always rationalize something, being strategic, something, being security, interest in the United States. So then every industry suddenly gets government intervention and government involvement.

1:25:09And then the third thing is I don't want the government making money, that the Congress then says, hey, we've got more money. We've got more revenue. Let's spend more money, because then they'll create a bunch of waste and nonsense that'll arise from having increased revenue. One side, and I will say one thing where I do think we do a poor job, is we We don't do a good job to answer your question, Jake Hal, of investing the retirement funds that we've mandated through Social Security. We should be taking the $4 .5 trillion that our Social Security beneficiaries have had deducted from their paychecks over many, many years.

1:25:40And those Social Security future retirees or current retirees are getting completely ripped off because their money is being loaned to the federal government, not being invested. It's been loaned to the government to spend money and run a deficit and ultimately inflate away the value of the dollar. We should have been investing those dollars in some of these strategic assets. So if ever there were to be shares or investment that the government does, it should be done through strategic investing through the such a security or retirement program. Similar, by the way, to what's done in Australia, where these supers have created an extraordinary surplus of capital, same in Norway, same in other Middle East countries, incredible sovereign wealth funds that benefit the retirees and the population at large.

1:26:21That's where the dollar should be invested from. I do think the fundamental focus priority right now Should be reforming social security while we still have the chance We have until 2032 when social security will be functionally bankrupt and everyone's gonna get overtaxed and kids are gonna End up having to pay Through inflation for the benefits of the retirees of the last generation Fibrex right, we're on a seven -year shop clock to when social security is not funded and by the way This opportunity to fix mandatory spending it was an opportunity to introduce some structural reform and social security Another reason why I think that there is a degree of discrepancy out in this bill particularly with how Congress had acted and Not addressing what is becoming a critical issue because everyone wants to get reelected in the next 12 months 18 months They've got elections coming up so everyone's scrambling to not mess with that because you can't touch it It's like you know what guys.

1:27:08This is bankrupt in seven years. It's gonna cost us five ten times as much when we have to deal with it when everyone runs out of money Deal with it now I have to say. Fix the problem. By the way, we should flip all that money, four and a half trillion dollars into an investment account for the retirees where they can own equities and they can make investments in the markets and they can participate in the upside of American industry and the GDP growth that's coming. Instead, they're getting paid 3 .8 % or 4 .5 % average from treasuries that they own that by the way or now have a lower credit rating than they've ever had.

1:27:39You know, it's crazy. I've been completely agreeing with you and I think it's a lack of leadership on Trump's part. If Trump is going to criticize Taylor Swift and Zelensky and Putin and everybody, you know, all day long on Truth Social, he can criticize Congress and the Democrats and the Republicans are not cutting spending. I think he should speak up. I think he was elected to do that. It was a big part of the mandate. And he should tone down the tariff chaos and tone up the and lean into intelligent immigration, you know, recruiting great talent to this country. and he should be pushing to make these bills control spending.

1:28:18That's just one person's belief for the chairman dictator to Mothfai Hapatia, your czar, David Sacks, and that Chris Bioni, white shirt, very beautiful. And the Sultan of science deep in his Waleerra. I am the world's greatest moderator and that's Reeper. We'll tell you the executive cruiser for life here at the All In Pongest. We'll see you all next time. Bye -bye, Jason Adoll and Dr. Love You boys. Bye -bye. Oh, I'm going to win! Well, let your winners ride. Rainman, David, South, and South. I'm going to win! And it said we open -source it to the fans, and they've just gone crazy with it. Lombi West, I speak.

1:28:55Queen of kilowatt. I'm going to win! I'm going to win! What? What? What?

1:29:03Besties are gone. I'm going through it. That's my dog taking it away. I wish you drive away. Sit down. We're at all. Oh man, my hamlet is actually a meaty ass place. We should all just get a room and just have one big huger because they're all just just like this like sexual tension that we just need to release that out. What your, that beat, what your, your beer beat. Beat, what? We need to get merch. I'm going on lead!

1:29:35I'm going on lead!